Dovish cues from ECB interest rate update yesterday served as clear bearish breakout trigger for global markets resulting in global market heading towards dovish weekly close.
Summary: Global equity markets are currently trading dovish for fifth consecutive trading session today and are all set to close with highest weekly loss for 2019 till date. A basket of dovish factors stemming from key global markets across the globe kept dovish sentiment high across the globe resulting in erasure of all positive sentiment influenced by weekend headlines at start of the week. Further, major global central banks – China, Australia, Canada and Europe saw their MPC members take a dovish tone with Chinese and European central banks even taking some major steps that put a great dent in investor sentiment. China reduced its 2019 growth target to 6% – lowest in nearly 30 years while European central bank reduced their growth and inflation forecast for the year ahead and also stating that it will begin its TLTRO plan from September 2019 which is less than a year since it terminated its previous long term Quantitative Easing program causing high risk averse trading activity in both forex and equity markets as trading session came to close for the week.
Precious Metals: As major central banks band together forming a new bear cartel, the dovish sentiment generated from same offset any sort of bullish influence generated from positive macro data updates. This along with week long dovish decline in equity market hurt investor risk appetite resulting in precious metal bulls managing to gain positive momentum today. Following two consecutive sessions of trying to break free from USD’s grip, safe haven demand today helped precious metals stage positive price action today.
USD/JPY: The pair fell to weekly lows as market sentiment turned risk averse following yesterday’s ECB interest rate update and press conference. While market has been bearish since start of the week, strong USD limited declines earlier this week, but sharp spike in dovish investor sentiment resulted in a change in price dynamics of risk assets in global market and this helped Japanese yen gain some ground against USD. Further disappointing Chinese trade data boosted dovish investor sentiment helping establish dovish action ahead of US NFP data.
AUD/JPY: The pair is trading range bound today with clear zigzag price pattern as both sides of currency pair try to gain control over price action ahead of US NFP data. Disappointing Chinese trade data and high level of risk averse trading activity influenced some level of dovish price action. However caution ahead of NFP data saw investors hold back on placing major bets resulting in range bound price action during Asian and European market hours.
On The Lookout: As trading session comes to close for the week, investors main focus shifts towards US macro data which is expected to provide directional cues. Multiple central bank interest rate decision and comments from central bank members kept overshadowing macro data outcome resulting in headlines pertaining to geo-political events and comments from central bank figureheads controlling price action so far. But all such events are over for the week and now investors are eyeing US macro data as the outcome of today’s US NFP data will decide USD ‘s strength and directional bias in broad market. The directional bias of US dollar as market closes tonight will decide the short term price momentum and act as fundamental indicator of price action for the week ahead. Aside from non-farm payroll data US economic calendar is scheduled to see release of building permits, unemployment rate and average hourly earnings data while Canadian calendar will see the release of Employment change and unemployment rate data.
Trading Perspective: Investors are likely to hold back from placing major bets ahead of US NFP update and post release of US macro data are likely to book short term profits while placing major bets which are expected to dictate price action once trading session resumes next week. This is likely to cause increase in trading activity near end of trading session while also giving a better picture on direction in which market is likely to move forward next week.
EUR/USD: The pair fell sharp overnight on dovish cues from ECB. The two major takeaways from yesterday’s meeting were debut of TLTRO in September and no rate hike plans till 2020 which caused the pair to make clean breakout to multi-year lows. The outcome of the today’s US NFP will decide if the pair will resume last night’s decline and move towards lower half of 1.11 handle or continue on rebound action and move back towards mid 1.12 handle giving investors a clear idea on short term price action.
GBP/USD: Following last night’s sharp decline on ECB MPC update and headlines from Reuters which hinted at PM May warning EU that they are likely to face disorderly brexit unless concessions are made in regards to Irish backstop agreement the pair is trading range bound below 1.3100 handle. Given UK’s silent macro calendar today, traders are eyeing US macro data update for directional cues and amid scenario where brexit progress is at standstill the strength of USD is likely to drive short term price action in the market.
USD/CAD: The pair continues to decline ahead of US NFP despite crude oil price erasing all gains made yesterday as forecast for USD macro data scheduled to release later today hints at dovish outcome. A dovish outcome will result in the pair seeing sharper decline resulting in dovish close for the day.
